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Want to Know How to Get the Best Mortgage Deal In America?


"First Time-Home Buyers Tips & Advice Before You Hand Over Your Money~Also Learn a Thing or Two About Foreclosures"....



by Terry Clark




Table of Content


1. How Much Can You Borrow

2. How Do You Qualify for a Mortgage

3. The Importance of Your Credit Score and Where to Find it

4. What is Mortgage Pre-Approval and Do You Need One

5. Banks and Mortgages

6. Brokers and Mortgages

7. Should You Find Financing Online

8. What You Should Watch out for When Shopping for a Mortgage

9. What to Compare When Shopping for a Lender

10. Is Fixed or Adjustable Rate Interest Best for You

11. The Basic Setup of a Mortgage

12. How to Figure Out Your Loan Amortization

13. What You Need to Know About Prepaying Your Loan

14. What Can You Do Without a Down Payment

15. Where to Find Special Financing Programs for Home Buyers

16. Getting a Mortgage When You’re Self-Employed

17. Why Lower Interest is NOT Always Better

18. How Much Insurance Do You Need for Your Mortgage

19. Can You Get a Government Loan to Buy a House

20. What to Do If You Can’t Make Your Mortgage Payment

21. Are Bi-Weekly Mortgages a Good Idea

22. Should You Accept Seller Financing

23. Who Regulates Mortgage Lenders

24. How to Refinance Your Mortgage

25. How to Reverse Your Mortgage for Retirement


**Learn a Thing or Two About Foreclosure


1. What is Foreclosure

2. How will Foreclosure Affect Your Credit

3. Is Foreclosure Your Only Option

4. Steps to Take to Avoid Home Foreclosur

5. How Debt Counseling Can Help

6. Can You Rework Your Mortgage

7.Find Out if Your Lender Will Give You a Grace Period

8. Is Selling Your Home an Option

9. How to Protect Your Home with a Trust Account

10. Should You Sign Your Home Over to the Lender

11. How Bankruptcy May Stop a Foreclosure

12. Are There Organizations That Can Help You

13. What Information Will You Need to Provide

14. Tips for Getting Your Lender to HELP You

15. Why You Need to Act Quickly to Prevent Foreclosure

16. How Common is Foreclosure

17. What is the Government Doing to Stop Foreclosures

18. Can You Stop a Foreclosure

19.What to Do If the Bank Decides to Foreclose

20. I Missed a Payment - Will the Bank Foreclose

21. Why Lenders DON’T Want to Foreclose on Your Home

22. Common Myths About Foreclosure

23. What is an Out-of-Court or Power of Sale

24. What is Judicial Foreclosure

25. What is Uniform Commercial Code Foreclosure






1. How Much Can You Borrow


How much you can borrow for a home mortgage depends on several factors, all of which are important. How much your income is and what debts you have are two things that will be looked at closely. Your credit rating is another component, and how much - if any - you have saved for a deposit is yet another one.


To decide what amount you are eligible for, the lender calculates your debt to income ratio. This tells them how much of your total monthly income you must use to pay off your debts - and how much is left over. In simple language, if a lot of your income is used to pay off others debts then you won’t have much left over to pay off the loan. In this case you either won’t get a loan, or you won’t get much of a loan.


To borrow enough for a home you need to have a good income - or preferably two - not much other debt and at least some deposit. If you have no deposit, then the terms of your loan and your interest rate will be higher. But don’t despair; because there are many aid programs out there to help low-income families get a home.


The most used debt to income ratio is referred to as 33/38. What this means is that your housing costs should take no more than 33% of your total income, while adding the rest of the consumer debt you have should bring it up to no more than 38%.  These guidelines are flexible depending on the amount of down payment you have and they also vary according to the lender. Some lenders allow a 29/41 ratio to qualify for a loan.


So basically, how much you can borrow will depend on your debt to income ratio, your down payment and your credit history. You may find it easy to figure out what your income is per month, but if you are paid with a bonus or commission system as well as a wage, then it is a little more difficult.


Lenders only calculate your income based on what you’ve earned in the past, not what you are earning now. You will need the records of your bonuses from the last two years. You can work it out by looking at your W2 forms for the last two years. Add them up, divide the total by 24 and the answer will be your total monthly income.


If you are self-employed your income must still be figured out using records from the last two years. Working it out yourself will keep you a step ahead of the lender and you’ll know what to expect when he starts to ask questions.



2. How Do You Qualify for a Mortgage


To qualify for a mortgage you need to at least have an income - one that is not being gobbled up by any other debt. That is not to say you cannot have any other debt. It simply means that it should not exceed a certain percentage of your income. Remember that when you get a mortgage, you have to be able to pay it back. And you’ll be paying back heaps more than you borrow because of the interest rate charged.


When lenders start to examine your income, they like to be sure that they will get their money back. After all, that is what they lend it for; to make money through the interest. If they think you are a risk, they will require you to take out loan insurance. This will be even more cost to you, but will ensure that they get paid. A person who is considered a risk will also have higher interest to pay.


Your credit rating will be one of the things that a lender looks at to decide whether you are a risk or not. If you’ve had a history of late repayments or even just one repayment that is late, their alarm bells start to ring. They believe that if a person has paid late once before they will be more likely to do it again. Statistics show they are right.


So if you’ve had late repayments - even though it was through no fault of your own - then this will go against you in qualifying for a mortgage. It will not necessarily prevent you from getting one, but it will cost you in terms of interest and insurance.


Having a steady job that you’ve kept for at least two years will help you to qualify for a mortgage, especially if your income is a good one. If you’ve changed your career in the past and are just starting out on a new one, this will go against you. What lenders are looking for is that rock solid steady employment history in the same line of work. They want you to be earning something like twice as much as the amount that you have to pay them back.


If a lender offers you much more than you expected or need, be wary. While you might have sudden visions of the beautiful home you’ll now be able to afford, you will have to pay it back - if you can. The more the lender lends you, the more he will make; that is all some are interested in. Over-extending yourself is never a good idea.



3. The Importance of Your Credit Score and Where to Find it


Your credit score is one of the most important issues that a lender will take into account when deciding whether to lend you money. If you have lots of debt and late payments, then you will likely have a bad or poor credit score. Having a bad credit score will not prevent you from getting a loan, but it will make it harder and you’ll have to pay more in interest and loan insurance.


And in fact, your poor credit rating may not be your fault at all, but due to inaccurate late payments registered by credit bureaus. Take careful note of your payment history and get mistakes fixed immediately to keep your credit score squeaky clean.


So where do you find out what your credit score is? Since no one can get by without money, everyone has a credit score. The score most used for larger loans is that developed by Fair, Isaac and Co, commonly called the FICO score. Lenders apply to the three national credit bureaus, TransUnion, Fairfax and Experian to find out your credit score. You can do the same thing.


You should get your credit score at least six months before you need to apply for your loan. This is because it takes up to three months or more to fix any mistakes that have been made on it. Then you need to have at least three months of good history to show.


If you habitually make late payments without even realizing it, then you need to put in place a plan. If you have a computer, you can set up your bank account to pay automatically at a certain time. If not, make sure of when your payments are due and mark the date on your calendar. If you have a PDA, you can set it to remind you when to make the payments.


These things will help your credit score to improve. Another thing to help is to make sure you keep your balance under that credit card limit by at least 25%. If at all possible, pay off the credit card debt you have completely, before applying for the loan. The amount of money you owe on your credit card is a vital factor in your credit score.


So don’t get down about having a poor credit score, these are things you can do to improve it. Get cracking and make a new start. You’ll be glad you did.



4. What is Mortgage Pre-Approval and Do You Need One


To get pre-approval for a mortgage the lender must closely examined your credit history and affirm that you qualify for a loan. He will tell you what sort of mortgage you qualify for and discuss interest rates. Better still, he will tell you the amount of loan you should be able to get.


While this pre-approval is not a firm offer of a loan, it lets you go shopping for a home with more confidence, because you know that the lender will look on your formal application with favor. Since you now have a specific amount of money in view, you can narrow your choices down to fit in with the amount of the loan.


The pre-approval differs from pre-qualification. To run a pre-qualification check, the lender does not look closely at your credit history. It is only a general look at your debt to income ratio. You can do this yourself using the many online calculators available. Or you can get your real estate agent or a lender to do it for you. Loan terms and interest rates don’t figure in the pre-qualification equation.


To get loan pre-approval, you’ll need to talk to the lender and put in an application. The lender will need all the details of your financial history and your permission to make a credit search. Once you have pre-approval for a home loan, then the seller will be more than likely to accept your offer to buy.


When the buyer’s market for homes becomes competitive, as it is these days, a pre-approval may be just the thing to give you an edge in buying the home of your dreams. You can often apply for pre-approval online. This usually results in an agent contacting you to set up an appointment. Only by actually talking to you and examining all your details can the agent judge whether to give you pre-approval.


Pre-approval is not a binding agreement on either side. It simply means that your home loan application would be looked on with favor by the lending institution. And from your side, you could go to another lender for the mortgage you want, instead of staying with the one who gave you pre-approval. You will then have to present all your credit history again. You may want to do this if a long time has elapsed before you can find the house you want and the financial climate has changed. You might then find a better deal through a different lender.



5. Banks and Mortgages


Traditionally, people who need a mortgage go to a bank. They feel that a bank has lots of money and is more likely to give them a loan. When you go to a bank, you will be offered the choice of several different loans - assuming you qualify - but they will all be from the same financial institution; the bank you have chosen.


The loan officer at the bank you’ve chosen works for that bank and their job is to offer loans on behalf of the bank. The bank loan officer will not get a commission for successfully signing you up as the bank’s customer.


This mean that you are stuck with the interest rate they offer, so if you see another bank offering better interest rates, go there instead. Or you may be the type of person who enjoys a bit of haggling, in which case you may be able to point out the difference in what another bank is offering. If you are persuasive enough, the loans officer may try to match it - if he is allowed.


One point in favor of using your local bank is that it is there on the spot and understands exactly what is meant by various real estate terms. This means there should be minimal delays in getting closure, once all the details have been sorted out. If you use one that is a long way off, there could be delays.


Banks are financial institutions - they don’t really want to get into real estate. So they do their utmost to help you keep going financially when things get tough. They may be happy to re-finance your loan if you lose you job and find it difficult to meet payments. This is because they know that if they have to foreclose, they also have to pay all the costs associated with it, like taxes and upkeep. Banks would much prefer to make money via their interest rate, than pay it out in these costs.


This is encouraging for borrowers as often with just a little help from their bank, they can avoid losing their home and even take steps to make living a little easier by negotiation. This should be done in a pro-active manner. Never wait until the debt collector is ready to throw you out of the house before asking for help.


While it may be harder for the new borrower to get a foot in the banks lending door, those who are already in will usually be helped if they ask. And making it harder to borrow is not such a bad thing. It’s better not to borrow at all if the result means financial hardship or even bankruptcy further down the track.



6. Brokers and Mortgages


When looking for a mortgage many people will go to a mortgage broker. Mortgage brokers have access to many lending plans from many different lending institutions. A good broker should be able to get the best mortgage deal for you - and may even be able to get a far better interest rate than your local bank is offering.


The trouble is that brokers need to make money to live too, so where are they going to get it from if they don’t work for a bank or other lending institution? You, of course! They add a bit on to the interest rate of your loan and have that as their commission. They may also get paid an extra commission from the lending institution they get your loan with.


While there are some baddies out there, most brokers are honest. They have to be to keep their jobs. It doesn’t take long for a bad reputation to spread. And there are plenty of laws to protect you from a shonky broker. Competition for work is hot, so brokers need to stay honest and give good deals to keep themselves in a job.


That doesn’t mean you shouldn’t take steps to protect yourself. Always be sure that you get everything in writing from your broker, and then you will be protected. Remember too that when brokers quote you a price they can lower it. They’ve added their fee on and will no doubt have made sure they get plenty. You can’t blame them for that.


But feel free to negotiate to lower the interest rates. Your broker may even expect you to do this and have accounted for it in his original quote. So don’t feel that you are stealing bread from his mouth. And while you are at the negotiating table, you can also look at his fees. He is allowed to charge you a fee by law, but you are also allowed to try and get them reduced. Don’t accept too high a fee from a broker, because he is making his money off of those extra interest rates.


On the other hand, you should try to be reasonable. If you beat him about too much, he will lose the incentive to get you a good deal and work with you. If you hate trying to negotiate, let the broker do it for you by speaking to two or three and let them compete with each other. This way you will be the winner, because they will vie to get your custom.


You can initiate the first steps online to make the task less daunting. Once you go to a broker’s website, you’ll find it easy to put your first details into their question boxes and get the ball rolling that way.



7. Should You Find Financing Online


These days so much is done online that it seems everything we could possibly want is available. You can buy clothes, sign up for newsletters about everything under the sun, find out all about the news, wind and weather and generally have fun - all online. So what about the more serious side of life - that of getting finance to purchase your dream home? Should that be done online too? Is it safe?


Certainly the first steps to finding finance can and should be done online. By researching various sources of finance, you can compare their rates and requirements in just a few minutes. To do this by going to each one physically and speaking to the loan officer would take days or weeks.


It takes only a few moments to log into the website of a bank, other lending institution, or a broker and find out what they can offer you. They too want to save time and money. They do this by making the online experience as easy and helpful as they possibly can.


Many have online calculators freely available to any would-be customer to use. While these are limited in actually getting your loan settled, they provide a vital first step in seeing what is available and whether you fulfill the criteria. This saves time spent unnecessarily by a loans officer in telling you what you need to qualify.


To actually find financing online, you need to be a bit more wary. Make sure you are dealing with a reputable and honest company, whether it is a broker you are looking for or an actual financial package. Another thing to watch for is if the company is close to your home. If you choose to deal with a lending institution on the other side of the country, there could easily be delays.


These come about by the simple fact of them not understanding exactly what some terms mean. They need to be sure exactly what is meant in the contract, and so there is a delay while they find out. While it may not be much, it is something you need to be aware of.


There are many different types of mortgages, so when you are researching take your time and don’t rush it. If you don’t know too much about the topic, then you’ll need to do thorough research. If you don’t have the time or inclination, it may be a better option for you to go straight to a broker or a bank.



8. What You Should Watch out for When Shopping for a Mortgage


When shopping for a mortgage there are some things that you should know to help streamline the process. One of these things is to present your own credit rating to the lender, rather than waiting for him to get it. In fact, you should get this credit rating several months in advance of shopping for a mortgage so that you can be sure it is a good rating. If it is not, then you can do something to clean it up before talking to any lender.


You can order a free copy of your credit score by going to www.annualcreditreport.com. You can also phone 1-877-322-8228 or fill in an annual credit report request from the Federal Trade Commission. Once you have your credit score, it is important to check it for inaccuracies such as late payments.


One of the most important things to watch out for when choosing a mortgage is the type of interest. If you don’t want any nasty surprises about the monthly costs soaring, then you would choose a fixed interest rate. While this may seem to cost more, if interest rates soar, you can laugh because you won’t be affected. If you’ve chosen an amount that you can comfortably afford to pay back each month, you won’t be in danger of losing your home.


An adjustable rate mortgage - where the interest rates start out low and then rise - is more suitable for when you know you will not be in the home for more than say, three years. Then you’ll be selling it before the high rates of interest apply. Or if you are sure your income is going to increase in a few years.


What if all goes well financially and you decide to pay extra off your loan to get it finished with ahead of time? If you haven’t checked the terms of the loan you may find that you are penalized for doing what seems to be a good thing. Many loans have a penalty clause that states you have to pay extra if you want to exit early. This is because the quicker you pay it off, the less interest the lender makes.


To make a penalty seem less likely, the box that is checked often contains the wording: “a penalty may be applicable”. There is usually no ‘may’ about it. Read ‘will’ for ‘may’.


Negative amortization should be avoided at all costs. You want to see the amount you must pay back decrease, not increase, but with negative amortization this is what could happen. An adjustable mortgage with a payment cap is the bad apple. If the payment cap doesn’t cover the whole interest payment, then that amount is added to the principal.



9. What to Compare When Shopping for a Lender


It is always wise to make comparisons between different lenders when you are looking for a mortgage. Only by comparing the different rates and terms can you find the best deal. Some financial institutions may be operating as both lender and broker, so be sure to ask. Otherwise, you may be hit with extra costs on closing that you hadn’t expected.


You need to know all the costs that you are expected to pay. Finding out the interest rates and monthly repayment is important, but it is not enough. You need the type of loan and the loan term on the same amount from different lenders. Then you’ll be able to compare them equally.


You need to ask about the annual percentage rate (APR). This includes not only interest, but also other costs associated with the loan. There could be broker’s fees, points or other credit charges. Points are the fees that are paid to a broker. Ask them to be quoted in a dollar amount rather than as points, as this will give a truer picture of your costs.


Ask for a list of fees. These may not even be mentioned until closing if you don’t ask. They can include not just brokers fees, but closing costs, transaction costs and settlement costs. In many cases, these fees are negotiable. There are also application and appraisal fees that are payable before closing. Watch out for no-cost loans as they often have higher interest rates.


Compare the down payment required on your loan. Some lenders want 20% and if you don’t have it, you’ll have to pay private mortgage insurance (PMI). Others lenders will by happy with 5% down payment and not ask for insurance. If you can take advantage of a government-assisted scheme, then the down payments are frequently much smaller. If you have to pay PMI, ask what the monthly payments will be with that included.


When shopping for a lender be sure to compare apples with apples. If you compare different loan types for different lenders, you won’t get a true picture of the differences. That is not to say you should not compare different types of mortgages. You need to compare mortgages just as carefully as you compare lenders.


Once you understand the basic differences in the products available, you’ll be able to make the choice that is most suited to your particular situation. Who wants to pay more than they need to?



10. Is Fixed or Adjustable Rate Interest Best for You


This is the sixty-four dollar question when buying a home. Should you choose a mortgage with fixed interest rates or adjustable interest rates? It all depends on your individual circumstances.


If you choose a fixed rate, then the interest rates will stay the same for the entire time of the loan. This means that you pay the same rate of payment per month - though in some cases insurance and other costs may rise, so your payment will rise with them. However, it won’t rise nearly as much as the payments of an adjustable-rate mortgage (ARM) will.


If an ARM is chosen, the payments are typically lower to start with, and then increase over time. Just when they start to increase depends on the terms of the loan. It could be fixed rate for the first year, two years or even three years. Or it could be only for the first three months of the loan.


Those who choose an adjustable rate do so because they either intend to sell their house before the fixed rate period is up, or they believe that their income will have increased enough by then to cover the extra cost. Adjustable-rate mortgages are usually for larger sums than the fixed-rate loans.


While it may seem something of a gamble to get an ARM in case the interest rates soar, there are protections in place for both the borrower and the lender. These are in the form of interest rate caps. This means that over a certain period of time specific to the terms of the loan, the interest rates are not allowed to rise or fall more than a certain number of points.


This saves the borrower from having to pay an exorbitant amount of interest and it saves the lender from missing out on his profit should the interest rates drop dramatically.


Statistics show that most homebuyers now prefer the fixed rate home loan. While the cost may seem to be more initially, over the long term, they save. These homebuyers intend to keep their home for a lot longer than 5-7 years. They will have a steady income, but don’t expect it to rise substantially in the future.


Therefore, they want payments that they can be sure won’t rise to any great extent either. In this way, they have peace of mind, knowing that as long as they can work, they can pay their loan off. So really, you are the only one who can decide which one is best for you.



11. The Basic Setup of a Mortgage


A mortgage is usually used for the single biggest loan most people make over their lifetime - that of purchasing their family home. The two most important elements of the mortgage are the capital and the interest. The capital is the amount you get to purchase the home, and the interest is the money that you have to pay the lender for the loan - in other words, his profit.


The capital does not always cover the full purchase price of the home, though it can. In some cases it may be only 75%, or maybe a little more. If the borrower has saved up enough for a deposit, he won’t need to borrow the full purchase price.


Having a deposit is good for the borrower, because it enables him to improve his loan to value ratio (LTV) with the lender. The lender will give him better terms when there is a good deposit saved up. It implies that the borrower will be better able to pay off his loan. And in fact, the borrower is better off using his savings as a deposit. He will save a great deal more on his mortgage interest rates than he will make as interest in a savings account.


But back to the mortgage. The interest rate of a mortgage will vary with the lender. It will be either fixed rate or adjustable rate interest (ARM). Additionally, the ARM has a capped interest to protect both lender and borrower as we have seen, and the first low payments of the ARM are sometimes called the discount rates.


Every mortgage comes with fees and these are, broadly speaking, the set-up fees, administrative fees, early repayment penalty and exit fees and insurance.


Set-up fees are usually payable on closing, while the other fees are payable over the course of the loan. Early repayment penalties only apply if you pay up early, of course. The insurance may not apply if you have a good deposit. It is usually those who get a loan for 100% - or almost that - of the purchase price who must pay lender’s insurance.


Taxes may also be a part of the mortgage. These are put into an escrow account and paid annually. They are property taxes and insurances for hazards such as floods and fire. So your monthly payment will have elements of all these costs in it. You’ll pay a percentage (small at first) off the capital, a large portion of interest and the other costs just mentioned.



12. How to Figure Out Your Loan Amortization


Loan amortization refers to the amount of time it takes to pay off a loan, including the interest and other associated costs. Everyone wants to know the day when they will finally be free of all that debt, even if it is thirty years down the track. They might even throw a party to celebrate.


If you’ve taken out a thirty-year loan, you might think it’s obvious that you’ll be finished paying it off in thirty years.  But banks calculate it a little differently. They use what is known as amortization tables and there are at least three different types.


The Equal Capital Amortization Table is one that calculates each equal monthly payment plus the total variable payment made to the bank. As the loan is paid off, the repayments decrease.


The Spitzer Amortization Table gives a fixed monthly repayment schedule even with a variable rate of interest. It is not true - as many people believe - that all the interest will be paid off in the first year.


The Bolit Amortization Table. With this table the first repayments are of interest only. The principal is only paid off after a specified period of time. The benefit is that the initial payments are smaller. But then you may have larger payments for the capital.


To figure out your own loan amortization, you can go online and get a free calculator. Then you have only to type in the details of your loan like the loan amount, interest rates, start date and mortgage time period. This will not be quite accurate since taxes are not included, but it will give you some indication of what your monthly repayments will be and when you can be debt free.


Neither does it tell you what to do with all your money once you’ve finished paying for your loan, but I guess you’ll be able to have fun working that one out yourself!


If you don’t want to or can’t go online to get a calculator, your PC is almost sure to have spreadsheets that will do the calculations for you. You will have to type in the loan balance, interest rate and terms.


If you don’t want to do it yourself you can ask your broker or loan officer. They will be glad help you out by doing it for you. After all, they do this kind of thing for a living so it’s no trouble for them.



13. What You Need to Know About Prepaying Your Loan


Did you just win the lottery, get an inheritance from your favorite uncle or sell a herd of cattle? If so, you may have decided to pay off that home loan and get it out of your hair forever. But is that really the best thing to do with your extra money?


What if you should lose your job some time in the future? Or maybe you suddenly have triplets to care for, or someone needs expensive dental treatment. We hope not of course, but emergencies can and do happen and you need to pay for them. In this case it might be better to put some of that spare cash away where you can access it quickly. No, not under the bed, but in a bank account that pays good interest.


But wait! Do you have credit card debt? If so, credit card debt has the biggest interest around and you are paying it. So whatever else you do or don’t do with that money, use at least some of it to reduce the debt on your credit card. In this way you will save the most.


It is still wise to keep a portion stashed away for those rainy day emergencies, though. Otherwise you may have to take out yet another loan to cover them and guess what? Yep, you’ll be paying lots of lovely interest yet again.


Of course if you don’t have credit card debt, then some of that spare money should certainly go to paying off your home loan. But find out first what penalties apply. There are usually fees that you must pay for the privilege of paying off your debt early. The lender always makes sure he does not miss out on his interest.


It could be wise move to consult with your financial advisor on the move to prepay, especially if your loan is a secured one. This type of loan is a little more complicated. Usually it makes sense to prepay if the penalty is not over 2% of the amount still owed, but there are exceptions.


One exception is if the interest rate on your loan is lower than the current interest rates e.g. you have a fixed rate loan. The other major one is if it affects the amount of deduction under section 80C.


No one likes to pay more than they need, so see if your prepayment penalties can be negotiated with your lender. Many times lenders are willing to decrease or forego the penalty, especially if you have a good credit history.


Another method is to partially prepay. This will save you a certain amount on your interest and you may be able to get the penalty waived for just a partial.



14. What Can You Do Without a Down Payment


You may have found your dream home and wish to take advantage of the real estate market, but it’s just the wrong time for you because you have no money saved for a down payment. Does this mean that you will miss out, or that you will be forever locked into those high rates that having no down payment seems to attract? Not necessarily. You should be able to find a way to purchase with nothing down and not be penalized. In fact there are several ways to do this.


The way that many people are familiar with is through the Department of Veterans Affairs (VA). Anyone who is or has been a member of any military service including the Coast Guard is eligible. Members of the National Guard or Selected Reserves who have served for six years may also be able to avail themselves of this benefit. It applies to every house you buy so long as it is for a primary residence.


VA foreclosures are open to the general publics with either nothing down or a $500 down stipulation. You loan must be a conventional or FHA loan; veterans or active military excepted.


Another method is owner-financing or lease-purchase. While these traditionally don’t have any down payment, the purchaser should err on the side of caution and always be sure of getting legal documents for the purchase. The standard lease-purchase form is readily available from office supply stores, but your attorney must draft the owner-financing contract, since they are not readily available.


The downsides of these agreements are that the buyer does not get any tax deduction for his interest. This might be an acceptable trade-off for not having a down payment. But the second scenario is somewhat more serious. If the seller should go bankrupt before the deal is completed, the buyer could lose all his money and the house as well.


On the upside, the buyer can often find a purchaser for this home who will agree to pay a great deal more for it than he has agreed to pay. And the deal could be done on the same day. Now that would be really nice!


To continue; house trading is a legal way of getting a house with no down payment. Professional investors often do this. Of course, you have to have a house to start with. In this case, you can often get a line of credit using the equity in the house you own, so you can still keep it and get another one.


There are a great many schemes and programs to help people buy their homes, so it’s worth looking into. To find out more, do a Google search, typing in special financing programs for homebuyers.



15. Where to Find Special Financing Programs for Home Buyers


There are many other financing aids for homebuyers apart from those already mentioned. Most states and cities have special programs in place that offer grants, special terms and other incentives to help first homebuyers or those with low incomes.  To be accepted for these programs, you have to be purchasing a home in the area.


For instance, the city of Austin has a Down Payment Assistance Program (DPA) that offers first- time home buyers a zero interest loan. The home must be in the Austin City Limits, and no doubt conditions apply.  See their website to find out more. They also offer assistance in other ways such as with their Mortgage Credit Certificate Program (MCC).


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Throughout California there are many programs to help the homebuyer. Some give grants of money up to $15,000 that does not have to be repaid, for those who qualify. First-time buyers programs backed by the state will give good deals on interest rates, and there are niche programs to help special vocations such as teachers, police, firefighters and others.


Sometimes homebuilders can offer special aid to clear their homes, like those around Dothan, Alabama. These special financing programs are called 2/1 buydowns, and the seller can offer up to 6% of the purchase price of the home to the buyer to help out with his costs and payments. They can actually buy down the buyer’s interest rates for the first two years. So if the sale price of the home were $175,900, the amount of aid would total $10,554. That’s a tidy sum in anyone’s book.


These areas are not the only places that offer help. Builders Incentive Programs are becoming increasingly common as they struggle to sell all the homes they have built in a slow market.


HUD has a scheme to help first time homebuyers with low incomes to buy a home with no down payment. There are several other similar schemes designed by the federal government. And the Rural Economic and Community Development Administration helps farmers, police and others with low incomes to get a home. It’s all worth looking into if the end result gives you your longed-for home.


The Housing Assistance Corporation (HAC) is based in Nevada and offers gift of money to qualifying individuals across the state.


The Housing Assistance Council focuses on high-needs groups in rural America, while the Community Housing Assistance Program, Inc (CHAPA) is a non-profit organization that provides assistance in affordable housing. These are just a few programs. There are many more.



16. Getting a Mortgage When You’re Self-Employed


Traditionally, lenders need to scrutinize the applicant’s income history, their ability to pay on time, and their immediate debts before agreeing to give them a mortgage. This all poses problems for the self-employed because they are so busy, they may not keep regular records of all their finances.  And if they are paid in cash, it’s really easy to use that cash to pay their bills, rather than document it as income.


And those people who are self-employed are often in the position that they cannot be 100% sure of their income from month to month. In one month they may make an excellent income, but in the following month they could make very little. This makes the regular repayment of any debt like a mortgage difficult. In fact, it makes lenders a bit dubious about agreeing to a mortgage at all.


So the first thing a borrower must consider is whether he can indeed, pay back any loan he gets. What is the point of getting a mortgage, and then not being able to pay it back? To be considered by a lender, self-employed people are also usually required to have a large deposit.


So to get a mortgage when you are self-employed, you could settle for what is called a low-doc loan. This is basically a loan where you don’t have to provide the documentation proving that you receive a steady income. Nor do you have to provide anything to prove that your credit history is good.


Of course there is a downside; you will have to pay high interest on your loan. You will also have to pay mortgage insurance, so the lender can be sure of getting his returns. Since the lender will usually give a low-doc loan without making sure you can repay it, you need to do the math yourself. If you are not sure you can repay, then you are better off not getting the loan in the first place.


Another option is to apply for a flexible mortgage. While you will be hit with an exorbitant interest rate for the privilege of borrowing this money, you do have one saving factor. You are not required to pay a fixed sum every month. You can pay none, or just a little. Or if you are having a good month, you can pay a lot. And if you’ve paid a big lot in one month, then find yourself strapped or cash the next month, you can borrow your payment back again. It is certainly flexible - the downside of not making regular payments of course, is that you’ll be in debt for a great deal longer than otherwise.



17. Why Lower Interest is NOT Always Better


Those in the market for a home loan will always look to get the lowest interest that they can. After all, the higher the interest, the more you have to pay, and that is what makes paying the loan back so much harder. So can there ever be a time when lower interest is not better than high interest?


Yes, but it depends on your financial circumstances. It’s always good to be able to claim a tax deduction, and the interest you pay on the loan for your first and second homes can be claimed off your tax. There are certain rules of course. Interest paid on the first $100,000 is tax deductible. Once that limit is reached, other rules apply, depending on what the loan was used for. If it was used for improvements to the first or second home, or to purchase a second home then the limit can go to $1 million - or to the value of the home.


So if you have managed to find a very low interest loan, it could be that you are not saving as much as you thought. But to find out for sure, and if you want to make that tax deduction, it’s a wise move to consult with a tax advisor. You don’t want to get in trouble for inadvertently doing the wrong thing.


It sometimes happens that you have to prepay some of the interest. This happens if you close the deal through the month, rather than on the 1st of the month, which is when most lenders want their mortgage payment to be due. So don’t forget that prepaid interest is also tax deductible.


To claim these deductions you need to itemize them on your tax return. Since all the rules and regulations are confusing to say the least, it’s wiser to get a certified public accountant to handle it all for you.


Other fees such as the loan origination fee are also tax deductible. While this particular fee is actually a percentage of the loan amount, it is mostly expressed as ‘points’. It is helpful for you to have it converted to a dollar amount so you can better understand how much it is, but for it to be tax deductible, it must be written down as points, e.g. 1 point or 2 points. Any discount points are also tax deductible.



18. How Much Insurance Do You Need for Your Mortgage


There are two types of insurance that apply to a mortgage and the one you see most often is the lender’s mortgage insurance (LMI). It is sometimes known as Private Mortgage Insurance (PMI). While many borrowers think that this will protect them, it doesn’t. It is aimed directly at protecting the lender if you default on your payments.


While it does not seem right that you should have to pay lender’s insurance, that’s the way of the world and you can’t do anything about it. There was actually a reason whereby the borrower came to pay for the lender’s insurance. Way back in the 1950s there was a ceiling on interest rates in many states.


If the lenders had paid their own insurance, they would have passed on the cost to the borrowers in the form of extra interest rates. That would have raised the interest rates above the legal limit. So the borrowers paid it as a premium to avoid this happening. And now it is one of those things that everyone does as a matter of course.


You’ll have to pay LMI particularly if your loan is considered a high-risk loan. For instance, if this is your first mortgage and you don’t have a very big down payment, then you’ll have to pay lender’s insurance. How much you have to pay is usually figured out on the amount of deposit you’ve saved. If you have saved 20% of the total loan then lender’s insurance won’t apply to you.


Anything under 20% will attract LMI and the less you have the more you pay. For instance, with only a 5% down payment your lender’s insurance will be extremely high. It is possible to get your family to pay the extra down payment needed to make it up to 20% by using equity in their own home, then you will be able to escape the LMI. Since paying this insurance adds to your total costs, it’s a good idea to reduce or eliminate it if possible.


To make sure you don’t lose your home to the debt collector if things go wrong and you can’t afford the payments, you need to have a different kind of insurance called mortgage protection insurance. There are various policies and they all differ in content to some degree. Some protect only in the cases of sickness or injury. Others provide financial assistance. Most pay out the whole loan amount in the case of death or disability. So if you can have peace of mind knowing if you were to die, your family would not lose their home.



19. Can You Get a Government Loan to Buy a House


The government offers many schemes to help those in need to own their own home. While these schemes may not be in the form of direct loans, they are certainly helpful if the borrower qualifies. They can be accessed through the official federal government website. The US Federal Housing Administration (FHA) also finances new homebuyers, first or second homebuyers and those with low incomes.


 FHA offer loans for housing that can be advantageous to the borrower who has a loan from another lender. If the terms of the loan were difficult to meet, re-financing would be a viable alternative. Loans that were acceptable a decade ago are now no longer attractive due to the change in interest rates and other things.  Refinancing with an FHA loan could save you a great deal of money, especially if you’ve years to go on your present loan.


 FHA loans traditionally have a lower interest rate than those offered by banks and other lending institutions. Because it is a government program, you can have peace of mind that there are no scams operating within the ranks. Whether you would save anything by refinancing depends on the terms of your present loan. FHA may not suit everyone, but it’s certainly worth looking into, especially if your needs have changed. For instance, you may now need to free up some cash for other areas such as education.


While we speak of FHA loans, the term is something of a misnomer in that the FHA does not actually make the loans, but it insures the loans that are made by private lenders. To get this assistance, you need first to contact a number of lenders and ask if they originate FHA loans.


Having the insurance paid by the FHA gives the lender confidence to make the loan that he might otherwise not make. It lowers the costs of low and middle-income earners, allowing them to access a loan for which they might not otherwise qualify.


FHA mortgage insurance does not factor in the borrower’s credit score like more conventional loans do. With a conventional loan, the amount of insurance required soars as the credit score plummets; with FHA it stays the same. This can save the borrower thousands of dollars per year on his loan.


Other initiatives funded by the federal government include grants via such schemes as the American Dream Down Payment Initiative



20. What to Do If You Can’t Make Your Mortgage Payment


It’s every persons nightmare; not being able to make those mortgage payments. You may have lost your job, be facing surgery or had some really big, unexpected bills and now you have no money left to pay for your mortgage. So, what to do?


Hiding in the closet will get you nowhere, so avoid the temptation. The first thing to do is get in touch with your loans officer or lending institution and tell them of the problem. They may be able to suggest a solution. Mostly they don’t do anything until two payments have been missed. This will give you a bit of leeway to come up with a way to get that money - but make it legal or you’ll be in more trouble.


Perhaps you or another member of the family could take on a second job. If the problem is only for this one month, then maybe a friend or family member can lend you the one payment. If you are truly desperate, move the kids into one bedroom and rent out the other one. This might be just enough to see you through a tough time.


If your home is big enough, you may be able to close off a door and make a flat out of half the house. This would bring in more rent than a single room. Whatever you do be sure to open all the mail you get from your lender so that you know what’s going to happen. The first one or two will give you information on how to prevent foreclosure, while any after that will probably tell you about the legal action they are taking.


Foreclosure laws are different in every state, so you’ll need to find out what the laws are in your state. Your state government housing office will be able to tell you.


Meanwhile, if all your plans for extra money fail, you need to call the Center for Foreclosure Solutions on 888-495 (HOPE) 4873. Don’t be embarrassed; you’ll have plenty of company in the myriads of other callers. Here you will find many financial counselors, investors and mortgage servicers and other people who are trained to help those in your situation.


Another place to call is a Housing Counseling Agency approved by HUD. The number is 800-569-4287. Or you could go to the HUD website to look up one that may be closer to you.


Many people think that paying off their credit card is the most important thing to do after buying food, but this is not right. Credit card debt cannot take away your home; missed loan payments can. Do whatever you can to keep up those payments.



21. Are Bi-Weekly Mortgages a Good Idea


Bi-weekly mortgage advertisements claim to save you lots of money over the life of your loan and help you to pay if off years faster. They do this by the simple routine of paying half of your monthly payment every fortnight, rather than one payment per month. This actually works out to thirteen months instead of twelve and that’s where the savings come in. Of course, you also have to pay a ‘small’ set-up fee and various other sundry fees and charges to the people who will do this for you.


That’s all right if you don’t mind paying out money unnecessarily. Just remember that mortgage lenders don’t actually accept half-payments, so your money is sitting in a holding fund for two weeks of the month - along with a lot of other people’s money - and the company that is doing you such a big favor is making interest off it, as well as the fees that they charge you for that privilege.


So why not do the same thing yourself and keep all those extra fees and charges? Here is an easy way to do it. You can take that extra monthly payment and divide it by twelve, than add one 12th onto each monthly payment. That would pay off that extra month by the end of the year. You do have to earmark that extra sum as a payment off of the capital, not the interest.


Doing it yourself in this way actually works out three months ahead of the way the bi-weekly crew do, because they wait until the end of the year when your extra payments have accrued to the full extra monthly payment. You, on the other hand, have been doing it per month, which brings the capital and thus the interest down more quickly.


Now your bi-weekly mortgage company will claim that the average borrower doesn’t have the self-discipline to make those extra payments. This is a load of - candy. If you have the discipline to write out a big check twelve months per year, you can certainly add that extra bit on. Better still, you can set up automatic payments online so that the money is deducted automatically.


Just as an example, if you take a loan of $100,000 at an interest rate of 8% and make the principal reduction equal to the monthly payments of $733.76, you would be saving $43,852. And you’d be finished seven years earlier. How good is that?



22. Should You Accept Seller Financing


There are many good points to be considered in seller financing. In cases where the buyer finds it difficult to get a conventional loan, seller financing may be the solution. From the buyer’s point of view, seller financing costs less because there are none of the many fees and closing costs associated with the loan.


With a conventional loan, having a substantial down payment is necessary to avoid insurance and high interest rates. If the buyer does not have a down payment - or only a small one - seller financing can be negotiated in a way that does not penalize him or her. Repayments can be negotiated to favor the buyer, much more so than in a conventional loan.


The buyer needs to be aware that when seller financing is in place, there need be no check on the condition of the property, such as would take place with a conventional loan. If repairs are needed, this will naturally be in the seller’s favor rather than the buyer’s. However, if the state of disrepair is obvious, then the buyer may be able to negotiate a price difference to account for it. Some repair problems are not easily visible, so this is a risk for the buyer. He must agree to purchase the property ‘as is’.


Another risk for the buyer is if the seller still owed money on the property and does not pay it off. The buyer could pay his installments promptly every month and still not receive anything at the end but foreclosure. There is risk for the seller as well, of course. He should run a credit check on the buyer, but this can be difficult. The fact that the buyer is accepting seller finance is often due to him being unable to get a conventional loan. And if he does not qualify for a conventional loan, there is usually a reason for it.


That’s not to say the buyer would necessarily be in any way dishonest - but he could have trouble paying off a loan. He might agree to the down payment requested by the seller and then default on that, if he does not have it. So the seller could waste a great deal of time and be disappointed with no sale at the end.


What it comes down to is trust and honesty from the two parties involved. If both do the right thing and are honest in their dealings, then seller financing can be a good thing for both.



23. Who Regulates Mortgage Lenders


Most financial institutions are regulated by someone to keep them accountable. The Department of Financial Institutions (DFI) is one such watchdog. Not all financial institutions come under their jurisdiction though; only those in California. These include banks, credit unions, trust companies, industrial loan companies and others that are all state-licensed.


Those lending institutions whose names include the word ‘national’ are the ones that are regulated by the state they are in. E.g. City National Bank or Bank of America, NA. Thus each state has its own regulatory body for the mortgage lenders in that particular state.


Those financial (lending) institutions whose names include the word ‘federal’ or the initials FA, FSLA or FSB are usually regulated by the Office of Thrift Supervision, a Department of the Treasury.


The Department of Corporations is responsible for licensing mortgage and finance companies, while it is the Department of Real Estate that licenses mortgage brokers and some other mortgage lenders. The National Credit Union Administration regulates federal credit unions. They should have the word ‘federal’ or the initials FCU in their titles.


To find out who regulates your particular lending body, check out the documents you have from them. In some cases, the pertinent name or initial may be left out of advertising.


If you have a problem with your lending institution, then you could start off by contacting the Federal Reserve Consumer Help. You can file a complaint through them and they will investigate it. It must be a legitimate complaint such as discrimination, violation of regulation or law, or if you think they’ve misled you or been unfair in some way.


Of course to be fair you should first try to settle the complaint by going to your lender, but if that doesn’t work, then the phone number for the above body can be found on their website. You can also write, fax or email them. Be sure to include your full contact details and a description of your complaint, including dates and names.


The Federal Reserve Consumer Help will be able to tell you what the regulatory body is for the lending institution you deal with. If they are the ones who regulate it, then one of their twelve Reserve Banks will deal with it. This usually takes between 30-60 days, though in the case of more serious allegations it could take several months.


They are unable to help in some areas, such as disagreements over particular bank procedures and policies, or if there is a lawsuit impending.



24. How to Refinance Your Mortgage


If you have a mortgage and you find it hard to keep up the payments due to some problem like a cut in your income or interest rates rising, then refinancing may be for you. When you refinance, you are actually taking out a new mortgage and using it to pay off other one. Since you still have payments to make on the new one, how is this any better?


It is better because the terms of the new mortgage will be different. Your old mortgage was most likely an adjustable rate mortgage, which means that every time the interest rates go up, so do your payments. When you refinance, you’ll negotiate lower interest rates - and you’ll make sure that your mortgage is at a fixed rate, so future rate rises will not affect it.


Knowing that your monthly payments will not rise by any marked amount for the term of your loan gives you peace of mind. It is still possible to see small increases due to the cost of insurance etc rising. But don’t forget that when you refinance, there will be added costs for the new mortgage, so you need to be sure that what you save in the interest will be worth it in the long run.


Some people might feel that if they just extend the terms - length of time - of the loan they have, that will be better and save them the cost of refinancing. But this is not so. To extend the time period will certainly mean that you pay less each month, but over the life of the loan you’ll end up paying more. This is because you’ll be paying more interest.


If you have other debts that you are paying high interest on, such as credit card debts, refinancing can be a good thing to do. This is because you can refinance to get some extra cash out and use this to pay off your debt. If the new loan is at a fairly low rate of interest, then you’ll save a great deal of money in two ways.


Firstly you’ll only pay low interest on that credit card debt instead of high interest and secondly, that interest is also tax deductible, whereas the interest on consumer debt is not.


The downside of it is that if you cannot pay your monthly installments, then you could lose your home. Credit card debt alone cannot cause the loss of a home, only unpaid mortgage debt can. Just remember that refinancing is no answer to undisciplined spending.



25. How to Reverse Your Mortgage for Retirement


If you have a mortgage, you can’t actually reverse it. A reverse mortgage works in the opposite way to an ordinary mortgage. Instead of you borrowing money from a lender and paying it back, the lender gives you an agreed amount of money - usually in installments - and you don’t have to pay it back. To get this reverse mortgage, you must have paid off your mortgage, or only have a little bit left on it. If you haven’t quite finished paying it off, then you can get a cash advance from the reverse mortgage to finish up the payments.


Getting a reverse mortgage is converting the equity in your home back to cash that you can then spend in any way you want. You can make repairs to the house, travel, or buy a new car. You can live in the house until it’s time to move to a nursing home or retirement village. Many people have found that a reverse mortgage enhances the quality of their retirement.


Some people, after working all their lives to become debt free, cannot feel comfortable with the thought of accruing a debt in their senior years. The interest that is added to the payments seems to make the debt rise substantially. And then they feel that they may lose their home, but this is not the case.


The contract states that they may live in the home until they either die, or need to move due to health problems. Any problem about losing a place to live may come about if the home - and therefore the reverse mortgage - is only in one partner’s name. If this partner dies before his or her spouse, then the remaining person may lose the right to live in the home.


A reverse mortgage is a non-recourse loan. This means that the only way the lender can get back the money he loaned you in the mortgage is to sell the home. If it doesn’t sell for what he gave you, then he has to absorb that loss. He cannot go to your heirs and force them to pay any more. Lenders bank on the value of the home increasing over the rest of your lifetime enough to repay their money and interest.


The only downside to getting a reverse mortgage is that your heirs will not get any money from the sale of the house when you are gone. But in these days of better education where the children are usually earning ten times more than their parents ever did, this should not be too big a worry.



Learn a Thing or Two About Foreclosure





1. What is Foreclosure


When a person buys real estate such as a house on a block of ground, they mostly need to borrow money from a lending organization. They then have to pay back this money - plus interest - over a period of years. Since life is not static and things like accident, illness and job loss happen, sometimes the person who borrowed the money finds it impossible to make those regular payments each month.


When this happens, the lender is not impressed because he needs to have his money repaid. In most cases, he then moves in to take the property off the borrower and resell it to pay the debt. This process is called foreclosure. Unfortunately, the borrower loses the property and must then find somewhere else to live.


Foreclosure does not happen immediately after the first payment is missed. In most cases there is a grace period of two or three months. If the payments are not made up by this time, then the borrower will soon receive a notice of foreclosure.


There are two types of foreclosure; power of sale and judicial foreclosure. Very often a power of sale clause is written into the mortgage document. What this means is that the lender has the right to sell the property without having to go through the court system. This makes it a lot easier and quicker for him to get his money back. But if that clause is not in the agreement, then he must go through the courts before he sells the house.


The judicial foreclosure is when there is a court hearing, usually in a state or local court. The sheriff or another representative then supervises the sale of the property by auction. Judicial foreclosure is a requirement in many states. The court sees to it that the lender gets his money first, then other people who are owed money. E.g. utilities may need to be paid. If there is any money left over after all other lien holders have been paid, then it goes to the borrower.


The benefit of judicial foreclosure is that the borrower can be sure of getting any money left over that rightly belongs to him. It may have been that there was not all that much money left to pay on the home and when sold, it realized much more than the debt. In this case, once all other debts have been paid the sum left over belongs to the borrower.



2. How will Foreclosure Affect Your Credit


You home loan is one of the biggest - if not the biggest - debt you’ll ever have. If you cannot pay it, that will certainly be detrimental to your credit score, but each case is different and so will be affected in a different manner. If your mortgage is the only debt you have then, when you are unable to pay it, your credit score will be affected by up to 200 points - maybe more. What this means is that you will be unable to get any more credit for something like seven to ten years. And when you do get it, you’ll have to pay higher interest.


However, if you have several other debts such as student, credit cards and car loans and you are paying them off on time every month, then your credit score will not be affected quite so dramatically. This is because you have some positives to offset the negative. In fact, the score may only dip by about 90, thus leaving you well able to obtain more credit in a few months to a year, and at a better rate of interest.


Of course, if you cannot keep up the payments on your mortgage now, then you are not likely to be able to do it in the near future, so whether you can get credit or not may not be a matter of concern to you. However, once your debt is cleared up and your life takes a turn for the better, you may need to get credit to replace an old car, or some other lesser loan. You don’t want to be paying high interest on any loan, no matter whether it is a big or small amount.


A person’s credit score is based on the previous seven years of buying history, and the whole of it is looked at when you go to borrow money. That’s why when your home mortgage is the only one you have and you default on the payments it sticks out like a sore toe and affects your score greatly.


But if you have many other debts that you are keeping up the payments on, then one debt in arrears does not seem so bad. Of course, if you have other debts that you cannot pay off, then the credit score situation gets really grim. But even if you cannot get credit, this may not be the disaster that it seems. It will make you discipline yourself to keep good spending habits and you will learn how to save your money instead of spending it. Living on credit is not a good thing if it can be avoided.



3. Is Foreclosure Your Only Option


There are several other options to foreclosure, so before your credit score is too badly affected you should try some other means of fixing the problem. One option is called the Short Sale and will result in your FICO score being reduced by about 80 points instead of the 200 or more a foreclosure will bring. It might even simply show up as the loan being paid off and so not affect your score at all.


Before a lender will agree to a short sale, your debt must be in arrears. In other words, you must have missed one or more payments. Most lenders don’t like short sales because they may not recover all their debt. The terms of a short sale are that the lender agrees to accept whatever the property brings when sold as the full amount of the debt, whether it is actually covered or not.


While a short sale is much better for the borrower’s credit rating, it does cause a great deal of disruption to his life until completed. The lender will arrange open days for vendors to inspect the property and private inspections for those that missed the open days. Some eccentric people might offer you a really low price. The downside of a short sale is that if you do have any cash assets, the lender may try to get at them.


Short sales are not the only options of course. Refinancing may be possible, though in many cases should be done before things get too far out of hand. Many people don’t act quickly enough and then go into foreclosure unnecessarily. If you have other debts that you are finding it hard to pay, then refinancing may help. Basically it is consolidating all your debt into one and getting better terms and a longer time to pay it so the total monthly payments are less.


If the hitch in your payments was only of a short-term and temporary nature and you can now keep payments up, but it is difficult to find the extra to pay those you missed, then you may apply for forbearance from the lender. This will let you pay off just a part of the amount you owe, along with the other monthly payments.


If the market is good, you may also be able to sell your home by private sale for enough to cover the cost of your mortgage - or even more, so that is another viable option.


Deed in lieu is yet another option. When foreclosure is imminent, the borrower and lender come to an agreement to give the lender the title deeds to the property. This settlement is done out of court and saves the lender the court costs associated with foreclosure. The borrower will still lose his home, but at least his credit score comes through unscathed.



4. Steps to Take to Avoid Home Foreclosure


Foreclosure should be avoided at all costs and the first steps to take when you know you cannot keep up the loan payments should be to contact your lender. Lenders don’t usually want foreclosure either. Foreclosures cost the lender money in court costs and time and they don’t always get all their money back. So avoiding foreclosure is in their interests too.


You are the first one to know if your payments cannot be kept up. When this happens - or preferably before it happens - you should contact a HUD approved counselor to help you. These counselors will be able to go through your finances with you to see what can be done to salvage the situation. This is a free service; so don’t pay anyone to help you. There are many people out there who will offer to represent you if you just sign on the dotted line. The trouble with doing this is that you may find you’ve sold your house to them.


When you contact the lender, you will find that he could have several options lined up ready to help you. You will not be the first borrower to be helped through tough times. Whether you contact them or not, once the payments are missed, they are obliged to send you default notices. Ignore these at your peril. They are designed to help you, rather than hinder.


Open and read everything you get from your lender. Simply ignoring the problem will not make it disappear. In fact, ignoring it will make the end result worse. Foreclosure will certainly occur through passivity.


While it is important to read all the mail that comes from your lender, it is just as important to get out those loan documents and read them carefully. Only by doing this will you know exactly what your rights are in the matter. And since every state has different laws and time frames in regard to foreclosure, then you need to contact your State Government Housing Office to find out what they are.


Beware of those offers to let you borrow more by using the equity in your home. If you find it hard to pay back debt now, more debt is not the answer. Never sign over the title of your home to a private buyer who assures you he will pay the debt once you move out. You will find yourself homeless and still owing money to boot. The only person you should sign the title of the home to is to the lender, to prevent foreclosure.



5. How Debt Counseling Can Help


If you are in a sticky financial situation, then debt counseling may be the thing for you. Sometimes you cannot see the wood for the trees. In other words, you are so close to your situation and so emotionally involved with it, you often cannot see the right way out.


Debt counselors can give you advice that is gleaned from years of training and experience. They do not become emotionally involved and so are able to see what you should do more clearly than you can see it yourself. And very often, the simple fact of getting advice will inspire you to stick with it. In some cases we know what we should do, but find it hard to accomplish without another person’s confirmation.


A debt counselor will be able to show you what the options are for your specific situation. They have the skills to set up a proper budget that many people do not have. They will help to save you from foreclosure or bankruptcy. Just be sure you choose a reputable agency. In fact a free one is good because then you won’t be paying them fees that could be used to pay off that mortgage.


Debtors Anonymous will give free help in much the same way as Alcoholics Anonymous helps those with a different sort of problem. You will have to be honest and up-front with them and agree to work with them on their terms. In return, you will get the benefit of good advice, learn new financial skills and save your credit score and maybe even your house. That’s a pretty good trade-off.


If any credit repair company charges big fees up-front or asks you to stop paying your bills to make creditors think you cannot pay, then be suspicious of their motives. The former could well take your fees and abscond without helping and the latter are only giving you a worse credit score.


Since each situation has different problems and needs, so using the services of a debt counselor will enable you to get more personal advice, tailored to fit your situation. While there may be many generic fixes out there, to have one tailored specifically for your situation will save you the most money and emotional trauma. And when the lender knows you are getting expert advice, he will have more confidence in you and your ability to pay off the debt, and so will be more likely to do what he can to help.



6. Can You Rework Your Mortgage


In many cases when things get out of hand financially, reworking a mortgage is a viable option. If interest rates have fallen and the interest on your mortgage is high, then it is certainly worthwhile trying to rework to take advantage of the drop.


There could be other reasons that you want to rework your mortgage. You don’t have to be in dire circumstances to do this. It could be that you need some extra cash for urgent repairs such as a new roof. Or maybe your credit cards are maxed out and you are paying high interest on them. If you rework your mortgage to pay them off, you’ll be saving quite a bit on interest rates.


 Or your situation may have improved dramatically and you’d like to rework the mortgage to make higher repayments and get it done with earlier. In this case, even though you could do it via a rework, it might be better to simply make extra payments, and then if something goes wrong and you need the money, you can take it back again. And you won’t be locked into making those higher payments every month.


Reworking a mortgage is when you contact your lender and get him to change the terms or conditions of your current loan. You can extend the time frame of the loan so you are paying less each month. But remember, the longer it takes to pay off, the more you are paying in total. You can negotiate for lower interest if the lender is willing. Or if your rates are adjustable, you might want to set them at a fixed rate.


Many adjustable rate mortgages have very low interest rates for the first year or two, and then it increases quite dramatically. This often causes hardship. You may be able to negotiate with the lender to keep the interest rates low for longer, or to give you rates that are less high, when the time is up.


Reworking the mortgage is almost the same as refinancing, in that you still have to pay the money, but you make it easier to do so through some change. Refinancing does the same thing, only you go to a different lender who takes over the mortgage and gives you the better deal that you wanted.


It is important to know the terms of your current loan before you try to rework the mortgage, or you may get worse terms than you have. At the very least you need to know the interest rates, the monthly payments and the length of time for the loan.



7. Find Out if Your Lender Will Give You a Grace Period


When you get a mortgage, the payments are usually due on the first of every month. Very often, there is also a grace period of fifteen days, so that if you make a late payment say on the 7th or the 14th, or even the 15th, you will not be penalized. If you pay after this time has elapsed, you will be charged a late fee. This grace period should not be taken advantage of every month.


Your payments are officially due on the set date - usually the 1st of each month. You should attempt to meet this date most of the time. If your mortgage is one that accrues interest daily, then the payments should be made either on time or preferably early to avoid the extra interest that will accrue. If your mortgage is one where the interest is calculated monthly, then you will benefit by paying later, towards the end of the grace period.


But what happens if you cannot make the payments at all? You may have been too ill to work, been put off work, or any other number of reasons. Then it is important to contact the lender and ask him to give you another grace period. Only this one will be much longer than that first-mentioned one. This grace period will be one to several months. It will not be to do with a late payment, but with missing payments.


If your problems are of short duration and your lender will give you a grace period to pay up, you will certainly save your credit score from being affected. This is a big benefit. But if you can also save the hassle of late payment warnings and foreclosure notices, then that is also a great benefit.


Contact your lender as soon as you suspect there will be a problem, don’t leave it until the date has passed. The lender will be much more amenable to a grace period if he knows beforehand what is going on. If you are honest and up-front with him, he will see that you can be trusted and be more likely to enter into negotiations.


There is usually a grace period of two or three months before the lender starts to send out late notices. If you have faithfully paid each payment on the due date for umpteen years, then find one month that you cannot pay it, the lender is sure to be amenable to granting a further grace period. In any case, it cannot hurt to ask.



8. Is Selling Your Home an Option


One way to avoid foreclosure is by selling your home. While you may not want to consider such a radical move, just think about the consequences of not doing so. If foreclosure is truly imminent, you will lose it anyway and your credit score will plummet as well. Selling could well minimize or prevent the damage to your credit rating. You could even end up with more cash than you have now.


The best way to prevent foreclosure is to offer your home on the open market well before foreclosure is threatened. It sometimes take a while for a property to sell, so if you know you are going to have problems with paying the mortgage any time soon, the quicker you act the better it will be. Make sure the price you put on the property is enough to both cover the rest of the mortgage and pay the closing costs and the realtor’s fees. If you know what you are doing, you may be able to sell privately and so save paying out money to the realtor.


The best time to consider the option of selling is if you don’t have a great deal left to pay on the house. This usually means that you’ve had it for a long time and so can expect it to have appreciated considerably. In other words, you will be able to ask for much more than you paid for it.  You will need to get a lot more too, to cover the expenses, since the cost of the mortgage is usually twice the cost of the property.


If you decide that selling may be the only option for you, choose a realtor who has an aggressive selling policy. Time is of the essence if you are selling to beat the possibility of foreclosure. You don’t have time to wait for weeks until the realtor gets around to taking photos and listing the property.


You might also consider a short sale. A short sale would be more appropriate if you have already missed two or three payments. In this case, you will not have time to sell the property through normal means. A short sale is accomplished quickly because the house is sold for only the amount that is owed on it or even less, rather than a fair market value. The lender accepts that he will get less than he is owed, but his costs are also less.  Most lenders are not willing to accept a short sale unless they are sure it’s the only way.



9. How to Protect Your Home with a Trust Account


It is possible to protect your home from creditors by vesting the title with a trust account. When you have a mortgage that you cannot pay, then the lender will try to claim your assets to satisfy the debt. Placing your assets, i.e. your house, in a trust account may save it from creditors, but only in a specific situation.


A living revocable trust is mostly used to save the cost and time of probate after your death. Once your assets are in a trust of this sort, they are legally owned by the trust, not by you. Therefore, when you die, probate is not required. Since probate often takes 3% to 4% of the estate’s value and two to three years to settle, this is a good thing. When the trust is a revocable trust, you can be the trustee and so maintain full control of the trust and even revoke it if you want. Once you die, it becomes an irrevocable trust and is administered by whomever you named to be beneficiary or trustee.


While your house will not be totally protected from creditors in a revocable trust, the creditors find it a great deal more difficult to access it. They must appeal to a court to get a charging order before they can access any assets.


Once you die and the trust becomes irrevocable, it then has an ‘anti alienation clause’ that protects the contents of the trust from being distributed to either the beneficiaries or their creditors. So if you die before you’ve paid for the house, then your heirs won’t be forced to sell it to pay the rest of the mortgage. The trustee must administer the trust, and creditors cannot force him to make any payments to the beneficiaries


One good thing about a revocable trust is its confidentiality. Probate is a public court proceeding and anyone can find out about your private affairs. When you have a revocable trust, transfer of the assets to the beneficiaries is kept from the public gaze.


If you are interested in a trust account to protect your home from foreclosure, you should consult an attorney who specializes in these matters. Never try to get out of paying a debt that you honestly owe. It’s likely to lead you into further trouble. Scam artists will protect themselves before they protect you. Remaining honest is the best way to sleep easy at nights. That’s not to say you should not take advantage of any legal means you can to help you prevent foreclosure.



10. Should You Sign Your Home Over to the Lender


When you cannot - or have not - made any payments on your mortgage, and then your lender will serve you with a foreclosure notice. This will impact negatively on your credit score so should be avoided if possible. Signing your home over to the lender is one option you could take to prevent foreclosure. It is called a Deed in Lieu. In other words, you sign the title of your home over to the lender instead of paying the mortgage.


You must face facts; if you cannot pay the mortgage, then you will lose your home, so why not give it to the lender with a deed in lieu? Doing this will relieve you of all the debt that is associated with the loan. It will prevent foreclosure and that bad credit score - although there may be some negative impact.  But it will not be as much as it would in the case of a formal foreclosure.


Before he agrees to a deed in lieu, your lender will need to know that there are no other liens on the property. He doesn’t want to be responsible for any other debts as well as losing what he is owed on the property. Because he wants to know that everything has been done to get the most money, he will usually want to see the property on the market for at least three months before he accepts the deed in lieu. He may also require an appraisal of the interior to make sure it is in good condition.


There is a downside. If the house does not sell for the amount owed on it, the lender may file a deficiency judgment against you to get the rest of the debt. While this is a possibility, most lenders don’t take up the option because they know that in reality, it’s not likely to get them any more money. If you couldn’t pay before, you won’t be able to pay any more now. And it will cost them in legal fees. However, if you do have many other assets, it is a possibility.


Both parties must enter a deed in lieu voluntarily and neither is legally obliged to go ahead with it until the final offer is settled. Usually, if the amount owed is more than the fair market value of the property, the lender will not agree to this procedure. If this condition is met, then the lender may still require the borrower to apply for the deed in lieu in writing, stating that it has been entered into voluntarily. This will protect him from any later claim that he pressured the borrower into it.



11. How Bankruptcy May Stop a Foreclosure


Avoiding foreclosure is of prime importance as this will save your credit score from damage and may even save your home, but how can bankruptcy help? Bankruptcy is not good news and should only be considered as a last resort. It can help to prevent foreclosure only if the dates are right.


That is, you can file for bankruptcy under Chapter 13 because once done, any action by creditors must be stopped. This will give you a little bit of time that you can use to bring those payments up to date. If you know there is no hope of doing that, then filing for bankruptcy won’t accomplish anything except perhaps allow you more time before being evicted.


It is imperative to get all the help you can before filing for bankruptcy. If the lender knows you are getting debt counseling from a HUD professional, they may be willing to wait before starting the foreclosure proceedings. This is always a better option than filing for bankruptcy.


There are two types of bankruptcy for private borrowers; Chapter 7 and Chapter 13. If you file under a Chapter 7 plan, then you will lose everything, including any assets you have apart from the house/property. All will be sold to satisfy the debt. But by using a Chapter 13 plan, you can still make regular payments on the debt and also you are given the chance to make good the payments you’ve missed. This will, in effect, save your property, but you still must be in a position to pay the monthly payments.


However, the dates are important, because it takes time for both foreclosure and bankruptcy to be established. If the foreclosure is well advanced, the bankruptcy date may be after it, in which case, nothing will be gained. In fact you may end up in a worse state; you could lose your home and yet still be required to make the payments.


This is due to a law enacted in 2005 requiring 180 days of debt counseling before the bankruptcy can take effect. But the same law does not prevent the lender from making a move to collect his payments, so he can still proceed with the foreclosure. This extra time means that your bankruptcy date will often fall after the foreclosure auction date.


Rather than filing for bankruptcy, the better plan would be to work with the creditor for repayments you can afford, or refinancing of some kind. This is termed loss mitigation and is a better option by far than bankruptcy.



12. Are There Organizations That Can Help You


In a word - YES! There are many organizations that can help you resolve your difficulties with debt and help you to keep your house. Even if you don’t yet have much difficulty, but think you may in the future, it is wise to start seeking help.


 Your circumstances can change. You may know there is a health problem that requires surgery further down the track. You may suddenly have a child - or twins - that you had not factored into the debt equation. You may wreck your car - no one expects that to happen, yet it does happen on a regular basis. There are many things that can happen to affect your ability to make those payments.


Debt counseling is one way of getting through the tough times with your home and credit score still intact. You can actually get free counseling from HUD specialists and some charitable organizations, so don’t make the mistake of paying for it.


If it’s really too late for counseling, then there are still organizations that can help you. Look online or in the telephone directory for Foreclosure Assistance Centers near to you. They will help you to analyze your situation clearly and advise you what steps you need to take either during or to prevent foreclosure. They can tell you about all the options that you may not even be aware of. Better still, they can explain the ramifications of those options in a way that is easy to understand.


Assistance Centers or counselors can usually help you to prioritize your debts and show you how to cut back on unnecessary spending. And they will be able to help you prepare all the necessary information that your lender will require from you when you contact him.


When you face foreclosure you become vulnerable to rescue scams, so be on the lookout for these unscrupulous people. They may charge a large up-front fee and abscond without helping you. They can get you to sign over the title of your house to them on the pretext that you are giving them permission to act on your behalf. They can also lead you to think it is possible to rent your home from them and eventually buy it back in that way.


Don’t be fooled by these scam artists. Get that free or low-cost help from a professional you know you can trust. Even talking to your lender is better than getting supposed help from some scam artist. What they charge you a big fee for doing you can do yourself without too much hassle.



13. What Information Will You Need to Provide


When you contact a reputable debt counselor you will certainly need to provide many pertinent details. This information must be up to date and true, or you cannot expect their advice to be what is right for you. For a start, you’ll need to provide them with photocopies of your loan documents. Only by looking at these, will the counselor be able to see what steps can be taken to prevent foreclosure.  It’s no good just telling them the details. You can get things mixed up, or forget, especially when you are feeling stressed.


They will also need to know what other debts you have. Never try to minimize these, or skip over them. If you are to get out of trouble, you need to be quite open and honest. Money must be repaid or there will be trouble - and trouble is what you are trying to avoid, right? So you will need to provide invoices for your bills and also a statement of your bank accounts.


A list of assets, both cash assets, investment assets such as stocks and bonds, and physical assets such as car, boat or other property will also be necessary.  Your current budget - if you have one - will help the counselor see what you are doing and how you could do it better. Simply dodging late fees by paying bills on time could free up enough money to pay off your mortgage. Finding out the type of mortgage you have and how you pay it, may help to free up money that can then be used on the debt.


It would be advantageous for you to sit down and write about your lifestyle too. While you may think that such detail is unnecessary, the debt counselor can easily spot ways in which you waste money. Once you are aware of these things, it can help you to save money you never thought possible.  Simply subscribing to magazines and buying a daily cappuccino costs more money over the course of the year than most people realize.


Entertainment and restaurant meals are luxuries that can quickly make your money fly to other people. How much better it is to deny yourself temporarily and use that money to save your home. So basically you need to provide all the information that the counselor asks for and more if you can think of it. Providing it up-front will save both you and them time and effort and get you sorted out much more quickly.



14. Getting Your Lender to HELP You


When a borrower is unable to pay off the mortgage, sometimes the last person they think to turn to for help is the lender. But just think; a lender is in the business of lending money, not real estate. He makes his profit by the interest that you pay. If he has to foreclose, he will be paying out money in court fees instead of making it in interest. Not only that, but it is likely that the house he is then lumped with won’t sell for enough to cover the debt, let alone make a profit.


So the lender is one person who would be interested in helping you out when you have trouble making those payments. Of course, he wants to know that he can trust the borrower before taking the time and trouble to change things in your favor. So the best way to get him on your side is to be honest with him right from the word go. Don’t wait until he has sent out two or three late warnings before you contact him.


Go to him before making any late payments; you must surely know ahead of time that you won’t be able to afford that payment. If you go to the lender and tell him that you are going to have trouble making the payment and ask him for help before it happens, then he will be much more likely to help you. So make sure you beat him to the phone.


If you haven’t been able to do that, then certainly you must be honest with him when he does call. Let him know your exact situation. Tell him all the details he asks for and let him know exactly what you are doing about the situation. If you have asked for debt counseling, tell him that. If you haven’t asked for it, he might suggest it. Ask him if he can advise you what to do. Make an appointment with him and make sure you keep it. Arrive on time, or early.


But if he suggests financial counseling through his organization, be sure to ask what costs are involved. No use in paying him for counseling that you could get for free elsewhere. Once you establish clear communication with the lender, he will be more amenable to granting you a grace period during which you can either come up with the payments or sell the house. He may also offer a refinancing option. Remember that you would not want to do business with someone who was dishonest or elusive either, so make it easy for him to like you and see what happens.



15. Why You Need to Act Quickly to Prevent Foreclosure


When people are on the brink of foreclosure many bury their heads in the sand, hoping that the problem will go away if they ignore it. It certainly will not go away, but if they acted quickly, they could possible choose another option before it happens. The sooner you act when trouble strikes, the more options you have.


Ignoring the problem until you are three or six months in debt, with no payments made at all during that time will leave you with almost no options but to accept whatever your creditor tells you he is going to do. You will be foreclosed, lose your home and have your credit rating plummet to the floor.


By acting quickly, you having more options and can remain in control of your destiny, at least up to a point. You can get debt counseling that could pull you from the depths and set your feet on the path - if not to financial freedom - at least to keeping your home. Most people wait too long before they attempt recovery, then find it impossible.


If you act quickly, your credit history will still be in good shape and so the creditor will be more likely to assist you. Call the phone number on your mortgage bill and ask to speak to the loss mitigation department. They are the ones who will have the authority to negotiate a better deal for you.


The service provider - that is, the company who sends your mortgage bill and collects the money on behalf of the lender, will not have the authority to negotiate on the lender’s behalf, so things are likely to get complicated if you ask them for help.


If you can see trouble up ahead but your payments are so far on time and current, going to the wrong person can put you behind and cause your ok account to become a delinquent account. Some brokers drag out the process for far too long and then don’t give you anything - e.g. a new loan package - at the end of it. Don’t deal with a broker, but go straight to the top as much as possible.


Dealing with a financial institution that lends to individuals directly will ensure you get what you ask for when you need it, rather than too late, or not at all. Acting quickly will assure the lender that you can be trusted to do all in your power to prevent foreclosure and pay your mortgage.



16. How Common is Foreclosure


Foreclosure is more common these days than ever before. This has come about by unscrupulous lenders offering ‘easy money’ mortgages to those who want a home but really cannot afford the repayments. These people do not understand that once the time low interest rates is up, they will then have to pay a great deal more as their interest will soar. All they look at is what they have to pay back right at the present time. They may not understand either, that there is more to pay in fees, taxes and other costs associated with the loan.


Some people do not understand that an adjustable rate mortgage will have very high interest after the ‘teaser’ period is up. They may think that there is as much chance of the interest rates falling as there is of them rising, but this rarely happens. If you want to be able to depend on your payments staying at the same amount for the life of the loan, a fixed rate is what you should opt for.


The lenders simply want to have a great many mortgages that they then bundle up and sell to another company. The second company is not personally associated with those who have taken out a mortgage. They just assume that these people can pay and if they cannot, wham! They hit them with a foreclosure notice.


Foreclosure often happens because life happens. No life is perfect and ideal. Costs rise; accidents happen; cars get trashed; teeth need fixing; people get cancer or are injured. The borrower may lose his job through no fault of his own. Sometimes simply having children unexpectedly can put a big dent in your budget. So these things happen and it takes more money than you expected. Some of the fault may lie with the lender, who pressed more money on you than you could really afford.


All he thought about was the interest he could make. You didn’t think it through because all you could see was that enticing vision of your dream home - one that had four bedrooms and a swimming pool. Suddenly you don’t have the money for the mortgage payment. If you don’t do something about it quickly, the next thing you know there is a foreclosure notice in your mailbox.


We all need to think about what we are taking on and make sure we can afford it for the thirty or so years that paying it off will take. It’s much better to buy a cheap home and be able to keep it, than buy an expensive one and lose it in a year or two.



17. What is the Government Doing to Stop Foreclosures


There have been so many foreclosures that the government has created a few programs to help out those in need. Were you were one of those unfortunate people that accepted an adjustable rate mortgage (ARM) because the teaser rates were so low? Now you find yourself facing a really high rate of interest, and you know you will have trouble paying it. Then you could qualify for one of these programs called Federal Housing Administration (FHA) Secure Refinance Program.


A conventional lender will give you a fixed rate loan instead of your present ARM. This will ensure that the payments do not rise steeply at the end of the teaser period, as they do with an ARM. If you know that your payments will stay the same for the duration of the loan, you can budget accordingly.


The FHA is not actually doing the refinancing, but they offer to insure the loan, which in many cases increases the likelihood of a lender offering refinance options. They don’t have to worry about your ability to pay back the loan or your credit history. However, conditions still apply and one of those is that you have made the payments on time each month up until the date of the higher interest. Late payments are allowed if they are due to the higher payment, but not if they are due to any other reason.


Some of the other conditions are that your present loan is not already an FHA-ARM, and that the interest rates must be scheduled for resetting somewhere between June 2005 and December 2009. You must also have equity in the home of at least 3% and a history of steady employment.  And of course, you must have enough money to make the new repayments.


To see if you qualify for this type of assistance you need to go to a lender approved by the FHA. A fixed rate mortgage may be just the thing for you. The website below will be able to help you find one close enough to where you live.




So if you are wondering how you will ever afford those high payments that are getting closer by the day, act now to see if you qualify for assistance. Don’t wait until you are delinquent on payments. The sooner you seek help, the better off you will be. Prompt action will save your credit rating from plummeting and could even save you from the trauma of losing your home. 



18. Can You Stop a Foreclosure


There are several ways to stop a foreclosure, but the best way is to prevent it from happening in the first place. To do this, you must act before your lender files that notice of default. If you call your lender as soon as you know that your payment will be late - or that it will remain unpaid, then you may be able to work out a solution together. Calling early will give you a lot more options.


 A lender may agree to forbearance, which is agreeing to wait for a specific time period before starting foreclosure proceedings.  This can give you some breathing space to come up with the payment. Or if you have already missed payments, he may allow you to repay them by spreading them out over several months and adding them to the monthly payment. This is called a partial payment plan.


Your lender may agree to refinance the loan so that the payments are more affordable. He may also agree to reduce the interest, extend the low interest period or change the loan to a fixed rate, rather than an adjustable rate. The lender may also agree to add the missed payments onto the loan balance, so that you don’t actually have to pay extra each month to make them up. This is all known as refinancing.


If the Notice of Default has already been filed, you can stop foreclosure by selling your home. You may need to drop the price to get it sold quickly, though, so be sure that you still get enough to pay your other costs. In some cases your lender may agree to a short sale, but mostly they don’t like this option, as it does not cover the full debt owed. A deed in lieu is another option discussed elsewhere in this ebook.


If foreclosure proceedings have been started, you can stop them if you file for Chapter 13 bankruptcy in the approved manner. This should always be a last resort. You still have to make the payments under the Chapter 13 bankruptcy plan, and failure to do so will restart the foreclosure proceedings.


Another way to stop foreclosure before it starts is to keep on making payments regularly, even though you have missed one, or even two payments. While you may not be able to afford the extra payments that are now due, you will at least not be in arrears for the current payments. This will make your lender more amenable to helping you.



19. What to Do If the Bank Decides to Foreclose


If things have gone from bad to worse and your bank has decided to foreclose, don’t give up hope of keeping your home; there may still be some way to save it. For foreclosure to become a fact of life, you need to have missed more than one payment on your mortgage. Most often you will be at least three payments behind.


The first payment you missed, the bank will send you a late notice. If you do nothing and miss the second payment, the bank will usually try to contact you. At this stage, they still want to help you resolve the situation. If no conclusion is reached, or if they cannot contact you then things go from bad to worse. They may allow another late payment, or they may invoke your acceleration clause instead.


An acceleration clause is when the whole of your mortgage comes due all at once. In other words the bank wants all their money right now. No waiting for thirty years to pay it off. You must pay the whole lot, including all the interest, costs and fees, immediately. This procedure is known as “calling the loan”. It is also the point of no return.


When the bank calls the loan, you need to get a good attorney - because you need legal help. You need an attorney who knows all about foreclosure law and can protect your rights. Strangely enough, it may still be possible to save your house.


But if you do nothing, then the bank will continue with the foreclosure and you will find an eviction notice in your mail within 6 to 12 months, depending on how aggressively the bank pursues their course of action. By the time you get that, your home will have been sold to the highest bidder.


However, with the right attorney to advise and work with you, you can file a Chapter 13 bankruptcy claim and stop the foreclosure in its tracks. This doesn’t mean that you’ll get away with not paying any more debt. It simply gives you time to breathe - and prepare other plans.


If you are delinquent on your mortgage payments, then you could well have other creditors hounding you. Once you’ve put in place the legal foreclosure prevention it also applies to other creditors. All must stop trying to collect moneys owed. Secured debt must still be repaid in full, but unsecured will have to be satisfied with a ten cents in the dollar amount.


The new payment plan that you get under a Chapter 13 will last for up to 5 years, giving you ample time to get back on your feet.



20. I Missed a Payment - Will the Bank Foreclose


Normally, a bank will not start foreclosure proceedings after only one missed payment. The trouble is, after you miss one payment, then every payment is deemed late because of that one still missing. That doesn’t mean you should simply stop making any payments, though.


Once you miss a payment, you need to figure out ways in which you can pay twice as much the next month. Meanwhile, you should certainly contact your bank to let them know you are still making the payments. You need to also work with them in figuring out a way to make up the missing payment. They may be happy for you to do a partial - pay part of the missing one each month until you have caught up.


If you cannot afford to make two payments the next month, you’ll keep on getting late notices and finally after the grace period, you’ll end up with a notice of foreclosure. So, no, they won’t foreclose immediately after you miss the first payment. They will send a late notice; a notice of default. But if the payments are not brought up to date, then eventually they will foreclose. It takes about three missed payments before this happens.


It is never done without your knowledge. Always open all the mail from your lending institution so you know what is going on. There are steps to take that can prevent foreclosure and save you home if you act promptly. Even your default notice will contain advice as to what you should do to prevent foreclosure. Read the letters carefully and decide if this is the best thing for you to do. If it is not, then get advice from a trained counselor.


Having missed one payment you need to contact the bank and let them know whether or not you will be able to make up the missed payment next month and if not, what you can do about it. If you know you won’t be able to keep up the payments, don’t pretend that you can, or hide from the truth. There are many people out there who can help you out.


Debt counseling help is free or low cost from several government sources; so don’t neglect to seek help because you can’t afford to pay for it. And never pay for it if there is a free option. HUD representatives are professionals who can advise you about your options for free.



21. Why Lenders DON’T Want to Foreclose on Your Home


You might feel as if most lenders are big, bad bossies that breathe the foreclosure word down your neck every time you even look like missing a payment, but this is not so. Many people feel this way because when they try to do the right thing and contact the lender due to payment struggles, they either get a pay-up-or-else attitude, or find someone who tells them to ring back after it happens, not before. This causes a great deal of frustration.


If you are trying to contact someone about your payment problems before you’ve missed a payment, ask for the loss mitigation department. They are the ones who will know what you are talking about and can advise you. Meanwhile, remember that the lender does not really want to be saddled with a home. What he wants is for his money to be earning him interest, free and clear of any other hassles.


If he has to foreclose, then he is in for a lot of hassles. His payment and his profit from the loan have stopped coming in. Filing for foreclosure is costing him money and so will all the rest of the procedures. He has to insure the house, maintain it and then market it. All this will make a big dent in the money he loaned. And he cannot be sure of getting back the amount he loaned out, let alone the interest on it. In fact, the only thing he can be sure about is that he will be saddled with a house he doesn’t want, that will cost him money.


Lenders frequently make a loan and then sell it, along with a lot of others to an investor. The servicer takes a part of the payment as his share of the investment and the rest is pooled and goes to the investors as dividends. Many times the lender you work with is not the actual lender, but the servicer. He makes the loan on behalf of another organization and is paid to collect the money, or ‘service’ the debt. When he has to foreclose, his income stream is dried up.


Even when the original lender holds the loan, foreclosure is a bad outcome for him. He is simply not likely to get all the money he would have made had the mortgage continued successfully over the years. Even when they sell the house to someone else, they don’t get anything that’s left over after their debt is paid. Anything left over has to go back to the borrower.


Finally as the problem of foreclosure has increased, lenders have been leaned on to make other provisions wherever possible. This pressure from FHA, and those two other bigwigs, Fannie Mae and Freddie Mac, has helped to turn the tide in the favor of homeowners - about time, too.



22. Common Myths About Foreclosure


Myths are a bit like gossip, the more they are repeated the worse they become. And in most cases they are not true to start with. All bad things bring their own spate of myths and gossip and foreclosure is no exception. One of the most common myths in foreclosure is the one that banks want your house so they can resell it at a profit.


This is just not true; banks are in the business of lending money, not real estate. True, when they are forced to repossess a home they do resell it to try and get their money back, but they don’t make anywhere near as much as they would have, had the loan continued. That is why you should be quick to seek help from the bank as soon as you know there could be difficulty paying up.


Some people think that the bank won’t accept their payments and there is nothing they can do. This myth may have sprung from people trying to make a partial payment without contacting the bank first. A bank - or any lender - wants the full payment agreed upon at settlement, not a portion of it.


Another myth that is current is that you have to move out on the same day you receive the foreclosure notice. Nothing could be further from the truth. The wheels turn slowly and you could have up to 12 months before you need to move out.


Some people also believe the myth that if they file for bankruptcy it will save their house. It won’t. Filing for Chapter 13 bankruptcy will delay foreclosure proceedings, but you still need to do something else to save the house…like pay for it.


People may also believe that once the bank has their house, that is the end of all their debt. This is not necessarily true. The bank is legally able to file a deficiency notice on you if they don’t get enough from the sale of the house to cover their debt. This option is not always taken up, but it is sometimes.


And if you’ve heard that once foreclosure has started it cannot be stopped even if you somehow pay all you owe them, then that is a myth too. Banks are legally obliged to accept the money and stop foreclosure.


Another myth is that when the bank takes your house, they can also take all your goods. That is not true. If it can be carried, it can be taken with you when you go. If it is attached to the house, then it should be left. There is also a myth flying around about the legal fees. Just because the bank started the process does not mean that they are responsible for the legal fees. You are and if that doesn’t seem fair, remember that it was not the bank that started it at all; it was your late or missing payments.



23. What is an Out-of-Court or Power of Sale


Power of sale or out of court foreclosure is just what it says. When the lender forecloses on the borrowers house for non-payment of the loan, they then sell the house to recoup their money. The selling can be done either through the courts, or it can by-pass the court system. The good part about the out-of-court foreclosure - at least from the lenders point of view - is that it all happens much more quickly, so he gets his money back months sooner.


Of course, all must still be done in a legal manner, so to have out-of-court or power of sale, there must be a clause written into the mortgage saying so. When this happens, the money from the sale of the home goes first to pay off the mortgage, then if there is any left over, the other lien-holders take an equal share. Finally, if there is still some left over, the borrower gets it. There are twenty-nine states that allow foreclosure by power-of-sale these days.


While technically speaking the sale is done with no court supervision, in reality there might be some legal matter that the court does need to decide on, so matters are not as always quite so straightforward as they might first appear. These issues could be due to defects in the deed, or to sort out the priority of lien holders or lessees of the property. In other words, who gets paid most or first. If this is the case, then there is likely to be a big delay in getting everything finished up, due to court systems being notoriously slow.


This form of foreclosure works well for the borrower, in that the mortgage holder is not allowed to seek a deficiency judgment against the borrower. In other words, if the sale does not cover the debt, the borrower cannot be held accountable for it. While the deficiency judgment option is not always acted on, to have it hanging over one’s head is not a pleasant sensation.


The disadvantage is that with the foreclosure sale being over and done with so quickly, the borrower then has to vacate his home within a few months instead of getting to stay there for up to 9 or 12 months. However, at least things are over with quickly and you can then make a fresh start and get on with your life. This is far better than lingering on with nothing settled.



24. What is Judicial Foreclosure


There are two types of foreclosure; judicial and out-of-court. Judicial foreclosure is when the bank - or any lender - has foreclosed on the borrower and the property must be sold through the court system.  In other words, the court supervises all the procedures. The lender must proceed carefully to ensure that all lien holders are satisfied, although he still gets first bite of the cherry.


All affected parties must be included in the court case and their claims dealt with before it can be ascertained that the purchaser can buy the title without any other claims made upon it. These parties must be ‘joined’ to the case and this is done with or without their consent. Regulations vary considerably from state to state about who should be notified and joined to the proceedings. 


Other interested parties may be included, but if they have no financial interest in the proceedings, they cannot be ‘joined’ without their consent.


The court will appoint a suitable person such as a sheriff to conduct the sale of the property foreclosed under the judicial system. Judicial foreclosure is available in all states and most states now require that a foreclosed property is sold in this manner.  While a foreclosure that goes through the judicial system will take longer to be finished with, at least the borrower knows that things will proceed in a fair and orderly manner. The mortgage holder is even allowed to bid for the property.


The extra time taken will give him a chance to think about what he will do and where he will go next. It gives him time to find a new home before having to vacate his present one. And he is virtually staying there rent-free for that time period.


While a deficiency judgment may take place, the court will see to it that ‘fair market value’ is adhered to, so the borrower may not have to pay the entire deficit.


There are other modes of foreclosure available in some states, but power of sale or judicial are the two most used. Traditionally, strict foreclosure was the only means available. With strict foreclosure, the mortgagor could bring his suit to the courts and the borrower would then be given a set period of time to pay up. If he couldn’t, the lender would get the title with no legal need to sell it. Connecticut, New Hampshire and Vermont all still offer strict foreclosure, but it is not available in most other states.



25. What is Uniform Commercial Code Foreclosure


With real estate, foreclosure is mostly either done as out-of-court or judicial. But in some cases goods rather than real estate may be foreclosed to satisfy a debt. When goods are taken the process is called Uniform Commercial Code Foreclosure or UCC. Each state has a their own version of UCC and the foreclosure must adhere to the rules and regulations for that particular state.


When the borrower defaults on payment, the lender may then take the goods and sell them at a private or a public sale to satisfy the debt. Or he may dispose of them in another manner such as by leasing. He must be able to show that a commercially reasonable manner was used in disposing of the goods - that he did his best to get top price for them.


In other words, he must have advertised the sale properly and seen to it that the goods were displayed in a way that suited them and made them attractive to the buyers. When goods are taken to be sold, it is often because they are what the borrower bought (rather than real estate) with the money he borrowed.


He may have already had property, say in the form of a restaurant, but had to borrow money for the furniture and other fittings. If he then defaults on the payment, the good are seized and sold, rather than the immovable property (real estate). If he bought real estate, his goods may not be sold to recoup the debt, but only the real estate.


Borrowers may also take out a loan to buy an apartment in a building. He does not own any real estate that can be secured to provide the lender satisfaction in case of default. So he must pledge stock and the lease of the apartment. The lender should then perfect the lien by filing a UCC-1 Financing Statement.


It is now not necessary for the lender to take physical possession of the borrower’s proprietary lease and stock certificate as in the past. Doing this worked against shareholders that needed a 2nd mortgage. Secondary lenders can now be easier about lending. Once the UCC-1 is properly filed it is legally considered to be the same as recording a mortgage.


If foreclosure becomes necessary on a co-operative apartment in a building block, then the owners can be sure of getting their debt satisfied ahead of secondary lien holders.





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Good Luck.

Thank You,

Terry Clark



































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